Options Enhance Trading and Investment Portfolios
Myron Scholes, Robert Merton, and the late Fischer Black revolutionized the financial markets and won a Nobel prize in economics in 1997 with their formula for the valuation of stock options. In 1973, they published the Black-Scholes formula traders and investors worldwide use to value stock options. The trio’s contribution showed that a risk premium is unnecessary when valuing an option as it is already included in the underlying price.
A put option provides the buyer with the right, but not the obligation, to sell an asset at a price (the strike price) for a limited time (until the expiration date). A call option gives the buyer the right, but not the obligation, to buy an asset at a strike price until the expiration date. Option buyers pay a price (the premium), while sellers receive the premium. Call and put options are price insurance, with buyers acting as the insured and sellers as insurance companies.
Options are tools that investors, traders, and speculators employ to gain leverage and hedge individual risk positions and portfolios. Option sellers can receive income as they collect premiums. The beauty of put and call options is they provide market participants with many alternatives that can increase or decrease risk, making them indispensable tools.
Many market platforms provide option pricing and services, but Tradier’s TradeHawk platform is the one that would make Merton, Scholes, and Black proud. While the trio wrote the formula, TradeHawk offers the tools creating opportunities to use options for a wide range of market participants, from novices to experts.
Towers simplify options
P&L tracking
What-if this and What-if that?
Keeping track of a growing portfolio
Charts are a roadmap
Pricing is critical
Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!
Options carry a high level of risk and are not suitable for all investors. Please read the Characteristics and Risks of Standardized Options before trading in options.
* Single Listed Index Options are subject to a $0.35/contract commission in addition to any other charges for exchange, OCC and regulatory fees. See Fee Schedule for more details.
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